A Cautionary Tale About Job Promises And Corporate Subsidies

General Motors and Ford Motor Co. are in the news for reasons that have little in common but serve as a cautionary tale about using job projections from corporate and government economic development agencies to guide policy.

Gov. Gretchen Whitmer announced this week that in return for as much as $35 million in state subsidies, Ford promises to add 3,000 well-paying jobs at its Michigan Assembly Plant in the city of Wayne.

GM, for its part, is in the news for reports that it will lay off as many as 814 workers at its Detroit-Hamtramck Assembly plant, otherwise known as the Poletown plant.

The link between these two events is that in both cases, speculative job promises were the centerpiece of efforts to obtain large taxpayer-funded subsidies from state officials. In the more recent example, the governor’s press release use the word “job” or “jobs” 17 times.

The GM Detroit-Hamtramck assembly plant opened in 1985, with projections it would save as many as 6,100 jobs in Michigan. In June 1980, GM announced it was closing two older plants that had a combined 6,000 workers.

A new plant would be built in Detroit-Hamtramck that would save those jobs.

Except, that plant never came close to employing 6,000 people.

Taxpayers paid $200 million to assemble and clear the site, which was sold to GM for $8 million in the early 1980s. The automaker was also granted 12 years of property tax exemptions on the site, according to a Dec. 5, 1993, Detroit Free Press story.

In return for the subsidies and tax breaks, GM was to provide those 6,000-plus jobs.

Reports from media outlets and GM show that the company came the closest to meeting that number when the plant first opened. A May 31, 1989, Detroit Free Press story reported that in fall 1985, the plant was running two shifts that employed 5,300 to 5,400 workers.

Within four years, the number of hourly workers had dropped to 3,000, according to a May 31, 1989, Detroit Free Press story.

According to Knight-Ridder Tribune News Wires and the Los Angeles Times, employment at the Detroit-Hamtramck Assembly Plant ranged from 4,100 to 4,200 in 1993 and 1994.

By 1996, the newspaper reported that there were 3,200 hourly workers.

Then GM reported it had 1,619 employees at the plant in 2013.

When state agencies award subsidies, their announcements are usually accompanied by press releases filled with exciting job projections. The media rarely follow up on the projections reported in early stories about the awards.

But reviews by the Michigan Auditor General of the state’s corporate subsidy programs have found they generate far fewer jobs than promised.

As reported in October by Michigan Capitol Confidential: “A 2013 analysis by the state’s Auditor General found that just 19% of the jobs projected by the MEDC’s 21st Century Jobs Trust Fund came to fruition.”